Similar to telecom companies, now the UIDAI body has asked mutual fund industry including the various asset management companies, online distributors and registrar and transfer agents (R&T) to discontinue using aadhaar-based authentication to complete KYC or know your customer process for mutual fund investors.
The unique ID issuing regulator further said that that the said entities will have to come forth with an action plan to exit the scheme and also confirm in writing that they have discontinued aadhar-based KYC authentication procedure. In response, a leading business daily cited AMFI's CEO as saying that " we will "soon meet all the stakeholders, including fund houses and R&Ts and come up with an alternative".
Most fund houses in a bid to on-board mutual fund investors faster via the online route were making use of aadhaar-based authentication. Here in an individual investor while investing in mutual funds need to provide his or her aadhaar number and once they get the one-time password on their registered mobile number, they need to enter that too. But this method has its own limitation as individual investor can invest a maximum of Rs. 50,000 per fund house per year.
There is yet another KYC procedure used in the mutual fund industry that makes use of Aadhaar Id and i.e. biometric based aadhaar e-KYC procedure. Using this method too, individuals can get started with their mutual fund investments and here in biometric of a person i.e. fingerprints are verified with his or her aadhaar database.
Now, as per industry experts, mutual funds will have to switch again to paper-based KYC process but can do away with the requirement of mailing the different documents and instead go by scanned documents to speed up the entire documentation and investment process.
The aadhaar-backed KYC procedure however completed the authentication faster for investors plus it also complied with the SEBI's mandated in-person verification ruling, which is in fact a regulatory requirement.